We’re Saving for Retirement but Worried About Inflation. What Should We Do?

Key Points

• Retirees run the risk of seeing their savings lose buying power due to inflation.

• Investing in the right assets helps mitigate that risk.

• Generating outside income can also help.

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Many people worry they aren’t saving enough for retirement. But what if you’re saving consistently and still aren’t confident you’ll be fine once your career comes to an end?

If so, you may be worried about inflation. And that’s understandable.

A 2024 survey by Allianz found that 63% of Americans are more worried about running out of money in retirement than dying. And 43% said high levels of inflation were contributing to their fear of running out of money.

The good news, though, is that with the right strategy, inflation doesn’t have to wreck your retirement. You can set yourself up to maintain your buying power even as living costs rise around you.

Battling inflation ahead of retirement

Inflation has been rampant in recent years, and it’s put a strain on consumers. But even during periods of moderate inflation, it can still be a problem.

In the course of building up your retirement nest egg, what you need to do is invest your money in assets that can beat inflation. And stocks are a great bet in that regards.

The stock market’s average yearly return has been about 10% over roughly the past century. Even if your portfolio doesn’t do quite as well, if you score an 8% return in your IRA or 401(k) over time, it could leave you with a lot of money in time for retirement while beating the rate of inflation.

And remember, your portfolio might also do better than 10%. In that case, you’ll be even better positioned.

If you’re not sure which stocks to buy, a financial advisor can help. But if you don’t want to go that route, a solid bet is to load up on S&P 500 ETFs.

This way, you’re basically investing in the broad market. It’s a good option for people who don’t know much about investing and don’t have the time or desire to learn (and no judgment if you fall into that category).

Battling inflation during retirement

It’s important to reduce your exposure to risk in your portfolio once retirement kicks off. But that does not mean you should stop owning stocks completely.

It’s important to invest in assets that can beat inflation during retirement, too. So to that end, aim to reduce your exposure to stocks, but maintain a decent position in stocks at the same time.

You may, for example, want to keep 50% of your portfolio in stocks as a retiree, depending on your appetite for risk. If 50% won’t let you sleep at night, go down to 40%, or whatever percentage you’re comfortable with.

At the same time, it’s smart to load up on assets that generate income during retirement. Dividend stocks are a good bet, as are municipal bonds, which offer the benefit of tax-free interest income at the federal level (and sometimes the state and local level, too).

It’s also a good idea to generate income in retirement as a means of maintaining your buying power. If you’re able to work, get a job.

It doesn’t have to be something boring like answering phones in an office or ringing up purchases at a retail location. You could start your own business or do something creative you love.

It’s natural to be worried about inflation, especially in the context of retirement. But the key to beating it is to invest in the right assets at various stages of life.

If you’re not sure what type of portfolio to assemble, you may want to consult a financial advisor for help. They can put together a mix of assets that’s designed to help you come out a winner in the race against inflation.

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